A Prescription for Monetary Policy, originally published in 1976, contains the proceedings from a series of seminars. The seminars addressed the question, "How should the Federal Open Market Committee (FOMC) make monetary policy?"

The need to carefully reexamine this question gained in urgency as the economic distress story of the mid-1970s unfolded. In recognition of the unsatisfactory state of the economy, a major Federal Reserve System research program was launched under the auspices of the FOMC's Committee on the Directive. The study's objective was to produce for the FOMC's consideration a set of recommendations on how to improve the execution of monetary stabilization policy.  

The seminar series held at the Minneapolis Bank aimed in part at generating input to the System study and in part at providing our Bank’s president, Bru~ceK. MacLaury, with background for judging the reasonableness of the study’s recommendations.

We made no pretense of having a definitive answer to how policy should be made. Such an answer would require the existence of a satisfactory theory of money, inflation, and the business cycle — something from which the present state-of-the-art in economics is some distance away. It was not acceptable, however, to conclude our seminars by saying, “Wait until we learn more,” because policy must be made from day to day whether by design or by default. We strove instead to arrive at a policy prescription based upon curreading of current empirical evidence and upon our judgment regarding the types of policy implications which we believe will follow from a macroeconomic theory not yet fully worked out.

The proceedings from our seminars in a sense provide a summary and review of monetary theory research conducted at this Bank. Rather than attempting to produce new knowledge, our seminars concentrated on surveying and synthesizing the Bank’s research findings (references are listed at the end of this introduction). ...

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CONTENTS
Foreword
Introduction 1
Preston J. Miller
Stabilization Policy: A Framework for Analysis 7
Arthur J. Rolnick
The Policy Procedure of the FOMC: A Critique 19
John H. Kareken and Preston J. Miller
On Macroeconomic Theories and Models 43
Preston J. Miller
The Rational Expectations Challenge To Policy Activism 51
Preston J. Miller, Clarence W. Nelson, and Thomas M. Supel
Testing for Neutrality and Rationality 65
Thomas J. Sargent
Microeconomic Theories of Macroeconomic Phenomena
and Their Implications for Monetary Policy 87
Neil Wallace
Epilogue 99
Preston J. Miller

FORWARD
Bruce K. MacLaury, President

For a number of years the research department of the Federal Reserve Bank of Minneapolis has been engaged in a program of research aimed at advancing knowledge about monetary stabilization policy. In the latter half of 1975, the research department conducted a series of seminars to discuss findings from that program. Papers presented at the seminars by Thomas Sargent and Neil Wallace were published separately in June of this year in the third in our STUDIES IN MONETARY ECONOMICS series, Rational Expectations and the Theory of Economic Policy, Part II: Arguments and Evidence.

This PROCEEDINGS volume contains the entire series of papers from the 1975 seminars which collectively explore the provocative challenge to conventional monetary theory posed by the “rational expectations” view. We are pleased to make these papers available to a wide audience. While the Bank does not necessarily endorse the various views presented in the papers, we hope that this publication will stir discussion and debate of the important policy issues which are raised and in this way lead to a deeper understanding of the economic process and the proper role for economic stabilization policy.

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